APRA's Watchful Eye on Illiquid Assets in Australia

The regulatory focus on super funds’ increasing exposure to illiquid assets continues to grow across the Tasman with the IMF now weighing in with concerns re liquidity risk, particularly as it relates to private equity and credit.

The continued consolidation of funds into "mega-funds" is adding to the risk mix from a scale and concentration perspective.

In response, APRA plans to launch its first financial system stress test in 2025 and it’s in the final stages of a deep dive review of asset valuation and liquidity management practices for a cross section of large and mid-size trustees with material exposure to unlisted assets.

Local discussions re the potential role of private market assets (more particularly those that are NZinc-centered) in KiwiSaver funds continue. Currently, we are nowhere near the exposure levels of the Australian funds, but if/as we increase exposures one could foresee at some point in the future the possibility of similar dynamics playing out, including the consolidation dynamic – in that regard it’s interesting to note from IR data that 18 of our 38 schemes have less than 10,000 members.

It will be interesting to see what insights emerge from APRA’s deep dive and stress testing activities.

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